Jakarta’s Economic Paradox: The Lipstick Effect and the Rise of the Experience Economy
As Indonesia enters 2025, the nation’s economy continues too grapple with decreased purchasing power, mass layoffs, and a shrinking middle class. Yet, amidst these challenges, a curious phenomenon has emerged: entertainment venues are bustling with visitors during long holidays like Isra Mikraj and Chinese New Year. This paradox has caught the attention of business expert Professor Rhenald Kasali, who highlights the resilience of consumer behavior in tough economic times.“Long holiday, the streets are stuck again, and this year’s holidays are estimated to be more than 100 days a year, many holidays plus Saturday Sunday. So why do the roads remain crowded? More people are affected by layoffs, young people find it challenging to find work,” said Rhenald in an Instagram post.
This behavior, according to Rhenald, is a classic example of the Lipstick Effect, a term coined by Leonard Lauder, Chairman Emeritus of The Estée Lauder Companies Inc., during the 9/11 tragedy in the United States. At the time,despite plummeting purchasing power and economic uncertainty,lipstick sales surged.
“All are looking for affordable luxury. People always look for luxury for themselves,to entertain themselves,to get happiness,but what is sought is increasingly affordable,” Rhenald explained.
As an example, rather of purchasing expensive cars, consumers are opting for more affordable models from China. Similarly, vacations are now closer to home, with destinations like Jakarta, Bandung, Jogja, and Central Java becoming popular. This shift towards affordable luxury extends to cosmetics and skincare, which saw a spike in sales during the COVID-19 pandemic.
The Experience Economy: A New Escape
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Economist Bhima Yudhistira, Executive Director of the Center for Economic and Law Studies (Celios), describes this trend as the Experience Economy.In times of economic hardship, people redirect their spending towards entertainment and leisure activities as a form of escapism.“For example,the momentum of vacation is used to spend money on recreation,watching cinema,hanging out at a cafe,or just exploring new tourist attractions. Even though the salary does not rise significantly, the mortgage installments are still a lot, but the shopping is directed to entertainment shopping,” Bhima told AFP.
This phenomenon has led to the proliferation of night entertainment venues, karaoke bars, and beach clubs, not just in Bali but also in cities like Yogyakarta. Urban consumers are also seeking out hidden gem cafes,were the experience of discovering a unique spot adds to the allure.
“Although an anomaly, the Experience Economy brings benefits to the economy such as the creation of new jobs, the development of regional tourism potentials, and nature conservation,” Bhima added.
Balancing Spending in the Experience Economy
Though, Bhima cautions that this trend must be approached wisely. He recommends a balanced approach to spending: 40% of income should go towards basic needs and mandatory installments,40% towards savings and investments,and only 20% towards Experience Economy activities.
“The community must be wise, maybe not to force going to entertainment venues by relying on loans,” he stressed.
Key Insights at a Glance
| phenomenon | Description | Economic Impact |
|————————–|———————————————————————————|————————————————————————————|
| Lipstick Effect | Consumers opt for affordable luxury items during economic downturns. | Boosts sales of cosmetics, skincare, and affordable goods. |
| Experience Economy | Shift in spending towards entertainment and leisure activities. | Creates jobs, develops tourism, and conserves nature. |
| Spending Priorities | 40% basic needs, 40% savings/investments, 20% Experience Economy activities. | Encourages financial prudence while allowing for leisure spending. |
As Indonesia navigates its economic challenges, the Lipstick Effect and the Experience Economy offer a captivating glimpse into how consumer behavior adapts to adversity. While these trends provide temporary relief and economic benefits, they also underscore the importance of balanced spending in uncertain times.
Jakarta’s Economic Paradox: The Lipstick Effect and the Rise of the Experience Economy
As Indonesia confronts economic challenges in 2025, including decreased purchasing power and mass layoffs, a curious trend has emerged: entertainment venues are thriving during long holidays. This phenomenon, known as the Lipstick Effect and the Experience Economy, highlights how consumer behavior adapts to adversity. In this interview, Professor Aditya Prasetyo, an expert on consumer economics, shares insights into these trends and their implications for Indonesia’s economy.
The Lipstick Effect: Affordable Luxury in Tough Times
Senior Editor: professor Prasetyo,the Lipstick Effect has been widely discussed in relation to Indonesia’s current economic climate.Can you explain what this phenomenon is and why it’s relevant today?
Aditya Prasetyo: Absolutely. The Lipstick Effect is a term coined by Leonard Lauder during the 9/11 tragedy in the U.S. It describes how consumers,especially during economic downturns,turn to small,affordable luxuries—like lipstick—to maintain a sense of happiness and normalcy. In Indonesia, we’re seeing a similar trend. Despite layoffs and reduced incomes, people are still spending on items like skincare, affordable cosmetics, and budget-friendly leisure activities. This behavior reflects a desire for escapism and self-care, even when times are tough.
Senior Editor: How does this play out in the Indonesian market? Are there specific industries benefiting from this trend?
Aditya Prasetyo: Yes, several industries are reaping the benefits. Cosmetics and skincare sales, for instance, have surged in part due to the Lipstick Effect. Additionally, we’re seeing a rise in demand for affordable cars, particularly from Chinese manufacturers, and shorter, more budget-conscious vacations to places like Jakarta, Bandung, and Yogyakarta. These shifts reflect consumers’ prioritization of value and affordability while still seeking moments of indulgence.
The Experience Economy: A New Form of Escapism
Senior Editor: Let’s shift to the Experience Economy. What exactly does this term mean,and how is it manifesting in Indonesia?
Aditya Prasetyo: The Experience Economy refers to the growing preference for spending on experiences—like travel,dining out,or attending concerts—over material goods. in Indonesia, this trend is particularly evident during long holidays, where people flock to entertainment venues, cafes, and tourist spots.Even as incomes stagnate and financial pressures mount, consumers are redirecting their spending toward activities that provide emotional fulfillment and a temporary escape from their worries.
Senior Editor: What are the broader economic implications of this shift toward experiential spending?
aditya Prasetyo: the Experience Economy has several positive effects. It creates jobs in the tourism and hospitality sectors, boosts local economies, and even supports nature conservation as people visit natural attractions. However, it’s crucial for consumers to balance this spending carefully.Overindulgence in leisure activities, especially if financed through loans, can lead to financial strain in the long run.
Balancing Priorities: Spending Wisely in Uncertain Times
Senior Editor: Speaking of balance, how can individuals navigate this trend without jeopardizing their financial health?
Aditya Prasetyo: I recommend a structured approach to budgeting. Allocate 40% of your income to essential needs like housing and utilities, another 40% to savings and investments, and the remaining 20% to discretionary spending, including Experience Economy activities. This ensures that while you enjoy leisure and entertainment, you’re also safeguarding your financial future.The key is moderation—indulging in affordable luxuries without compromising long-term stability.
Key Takeaways
Senior editor: what are the main lessons we can draw from these trends for both consumers and policymakers?
Aditya Prasetyo: The Lipstick Effect and the Experience Economy demonstrate how consumer behavior adapts to economic challenges.For consumers, the lesson is to prioritize value and balance in spending. For policymakers,these trends highlight the importance of supporting industries like tourism and retail,which can provide economic resilience during downturns. Ultimately, understanding these dynamics can help both individuals and the broader economy navigate uncertain times more effectively.
Senior Editor: Thank you, Professor Prasetyo, for your insightful analysis.It’s clear that these trends offer both opportunities and challenges as Indonesia moves forward.
